The ‘good’ and ‘bad’ news in the US employment report

The latest U.S. payrolls report did little to resolve the debate about where the job market is heading and provided plenty of fodder for both those who believe in a “soft landing” and those who doubt whether the Federal Reserve can rein in inflation without sending millions of workers into the unemployed army.

May’s “explosive” job gain of 272,000 jobs beat all forecasts of 77 economists surveyed by Reuters before the report was released on Friday, and the breadth of hiring was the largest in 16 months.

However, it is also a fact that the increase in the unemployment rate to 4% interrupted a period of more than two years below this rate. Moreover, this increase occurred for the “wrong” reasons: As people steadily dropped out of the labor force, more reported being unemployed and fewer reported having a job.

Here are some of the numbers that left economists speechless.

Last month’s job growth was almost exactly in line with the 12-month average of about 276,000 and exceeded the 10-year average of 188,000 by 84,000 before the COVID-19 pandemic.

On top of that, recruitment was large-scale. In fact, it was the most common among the 250 cuts tracked by the Office of Labor Statistics since January 2023. Hiring for the 72 manufacturing divisions tracked by the BLS diffusion index was the largest since October 2022, perhaps signaling a turnaround for a segment where job growth has lagged for nearly a year and a half.

While all major industrial clusters are now above pre-pandemic employment levels, with the revision to the numbers in April, only the leisure and hospitality sector remains above the highest level before the health crisis began in early 2020. This cluster was also the cluster that suffered the greatest losses during the pandemic.

The unemployment rate rose to the highest level since January 2022, ending a 27-month streak below 4% that was the longest stretch below 4% since the 1960s and a source of pride for Democratic Leader Joe Biden’s administration.

But 4% is still a historically low unemployment rate, and only six of the 14 leaders who served in the post-World War II era have governed during such an era, including the last two leaders, Biden and his predecessor, Republican Donald Trump. The fact that the two rivals will face each other again in the presidential elections on November 5 is an issue to watch.

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While the total number of people in the workforce fell by 250,000 and the labor force participation rate fell in May, one valuable demographic cluster remained: prime-aged workers ages 25 to 54. The labor force participation rate of this cluster, which constitutes the largest slice of the US workforce, broke a record by rising to 83.6%.

Women took the lead. The 78.1% participation rate for prime-age women is not only a record high, it is also only 11.1 points below the rate for prime-age men – the smallest gap ever. Although the male rate has increased slightly, at 89.2%, it remains below what it was before the pandemic and well below the over 90% before the 2007-2009 financial crisis.

NEW ARRIVALS

The wave of immigration continues to leave its mark on the U.S. job market, as foreign-born workers continue to account for the largest share of job gains and workforce growth. However, this situation may change in the coming months as the Biden administration restricts crossings at the southern border.

FLASHING STREAMS

Below the data on changes in the general level of the workforce, there are numbers regarding the flows that drive these changes. Every month, the labor force status of millions of people shifts between three broad categories: Employed (having a job); unemployed (unemployed but actively seeking work); and not in the labor force (not employed and not looking for work).

For example, did a person graduate from high school or college and get a job (became employed while not in the labor force), did they get fired from a job and start looking for a new job (became unemployed while being in the labor force), did they start looking for a job after being on the sidelines for months or years (entered the labor force) did he get a job after a period of actively searching for a job (got a job while he was unemployed) or did he retire from a job or quit his job to care for a child or relative (got a job while he was not in the labor force)?

For most of the last two years, the number of people entering the labor force as either employed or job seekers has been greater than the number of people leaving the labor force. This situation has begun to change, and in the last six months, on average, more people have left the workforce than joined the workforce. The proportion of new entrants to the workforce who find employment quickly is also decreasing.

A TALE OF TWO SURVEYS

The workplace survey of the last employment report showed payroll employment increased by 272,000, while the household survey showed employment decreased by more than 400,000. Although these two pieces of information often disagree on the magnitude or even direction of the monthly changes, they follow each other over time.

While a measure of household employment has been flat for nearly a year (it has fallen in five of the last eight months), the workplace survey showed an average of more than a quarter of a million new jobs each month. Economists say that at some point someone or another has to give up.